Health plans will pass on drug rebates to patients: Is it enough?

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Increasing scrutiny of the pharmaceutical supply chain by the public and policymakers alike has prompted some major insurers to promise that a portion of rebates garnered from drug manufacturers will be passed onto patients. On the heels of UnitedHealth’s decision in early March to pass on rebates to its beneficiaries, Aetna announced that it would follow suit. Between both insurers, roughly 10 million patients on fully insured commercial plans may finally benefit from the discounts negotiated between payers and producers.

The White House and Centers for Medicare & Medicaid Services have considered adding a similar pass-through provision to Medicare, allowing its beneficiaries to access cost savings from manufacturers. Such a move is vehemently opposed by the insurance industry, however, which argues that while insurers are willing to make the change in the private market, requiring the same consideration for Medicare beneficiaries would cause premiums to skyrocket.

The AACU has previously written on the pharmaceutical supply chain and the role that rebates collected by payers' pharmacy benefit managers (PBMs) have played in inflating prescription drug costs for patients. In an environment where patients are paying more for their medications while payers continuously pay less, the news from Aetna and UnitedHealth is welcome.

Next:"Significant issues remain with the share of resources retained by PBMs"On the surface, the insurers’ decisions appear to rectify issues identified by critics of the current structure of the pharmaceutical supply chain, but significant issues remain with the share of resources retained by PBMs. The three largest PBMs occupy the sixth, seventh, and 22^nd spots on the Forbes 500 list, outranking the closest pharmaceutical manufacturer by 13 spots. This enormous success is due in large part to the vast amount of “rebates” paid by drug manufacturers to PBMs.

Indeed, newly published transparency reports indicate that the average discount paid from the list price of a prescription drug ranges from 42% to 51%. It seems highly unlikely that patients will see the majority of these financial benefits.

The reason for this revolves around the manner in which PBMs use convoluted language in their contracts to retain manufacturers’ discounts for themselves instead of passing them onto patients. According to a leaked contract from Express Scripts, the PBM agrees to pass on the vast majority of rebates to a health plan, but there are certain poison pills in the language that allow the PBM to circumvent these requirements. For example, rebates are defined to not include things such as “administration fees,” “inflation payments,” or “other pharma revenue.” By classifying certain financial benefits from pharmaceutical manufacturers as these types of payments, a PBM can retain an enormous amount of rebate money for itself.

This would explain the vast incongruence between what pharmaceutical companies report losing in “discounts” to PBMs and what health plans end up receiving; the end result of which is the enormous growth experiences by PBMs.

Aetna and UnitedHealth’s decision to pass through rebates to patients is laudable, but it does not address key concerns with PBM practices that drive up the cost of prescription drugs. Among these are lack of transparency and the intense industry consolidation that the AACU has previously addressed. These developments are a step in the right direction, but they do not reduce the necessity of further action to lower patients' exposure to skyrocketing drug costs.